Top 5 Best Bearish Candlestick Patterns you Must Know | Espresso

5 Most Powerful Bearish Candlestick Patterns

Patterns exist everywhere, in nature, clothing, architecture, and others. They are often easy to identify and understand. In the stock market as well, candlestick patterns predict price movements, helping the trader understand if it is the phase of a bear market or a bull market.

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Candlestick charting is one of the most useful charting methods to identify the underlying trends across time horizons. Traders use different candlestick patterns to assess different market conditions and trade setups.

What is a Bearish Candlestick?

A candlestick is the pictorial representation of an asset’s price movement. For example, a bearish candlestick enables traders to quickly interpret the fall in stock prices and the downward market trend from just a few price bars.

The candlestick has three features:

  • The body - It showcases the open-to-close range.
  • The wick - It represents the intraday high and low. The shadow also indicates the same.
  • The colour - It helps traders interpret the direction of market movement. If the colour is white or green, it indicates a price increase, thereby hinting at a bull market trend. If the colour is black or red, it represents a fall in prices and indicates bearish patterns.

Candlestick patterns are one of the most useful tools to identify trading signals. Therefore, before you start trading, it is vital to understand the identification of a candlestick pattern and its subsequent interpretation.
Also Read: Long Wick Candlestick Pattern

In this article, we explore the five most powerful bearish candlestick patterns.

5 Most Powerful Bearish Candlestick Patterns

Here are the 5 most powerful bearish candlestick patterns:

  • Bearish Engulfing Pattern

The bearish reversal pattern or the bearish engulfing pattern is easy to spot and useful in bullish markets. Since it is a trend reversal pattern, it appears at the top of an uptrend due to the selling pressure exerted by the sellers. It indicates a fall in prices.

This bearish pattern triggers a reversal of the ongoing uptrend as buyers are losing momentum. Usually, the pictorial depiction of the pattern involves two candles. The second red candle engulfs the body of the previous green candles.

  • Dark Cloud Cover

This pattern is another bearish candlestick reversal pattern. It occurs at the end of an uptrend and indicates weakness in the uptrend.

The Dark cloud cover is the bearish counterpart of the Piercing candlestick pattern. However, traders can spot the pattern in a bullish trend when buyers have complete control.

The pattern involves two candlesticks. The first is a bullish candlestick (green), while the second is a bearish candlestick (red). The bearish candle is an indicator of the selling pressure. A larger candle indicates the higher intensity of bearish reversal.

With an increase in stock prices, the pattern becomes essential for the reversal to the downside.

  • Bearish Harami

The third bearish candlestick pattern is Bearish Harami. It is seen in the uptrend and is considered a reversal pattern. The pattern is formed with a long bullish candle on Day 1, followed by a smaller bearish candle on Day 2.

The trader needs to observe a vital aspect in this pattern. The prices on Day 2 opened lower than the prices on the previous trading day, and they were not able to rise back to the close of Day 1. It is a signal of uncertainty in the continuation of the ongoing trend.

Bearish Harami is the opposite of the engulfing pattern. The first candlestick here is larger, while the second candlestick is smaller.

  • Evening Star

The bearish counterpart of a Morning Star pattern is an Evening Star. It appears at the top of a revival and is formed by three candles.

The first candle is a long bullish candle in the colour green. The second candle is small, ideally a Doji candle. The last candle is a long bearish candle, indicating the end of the bull move. The pattern replicates the structure of a star.

  • Gravestone Doji

The last bearish pattern is the Gravestone Doji. It is a single candlestick pattern. But, it is still one of the most definite and earliest signals that appear at the top of the uptrend.

It indicates that the buyers/bulls are pushing prices higher than the point where buyers face extreme pressure and feel exhausted. The pattern is formed when the open, low, and closing prices are close to each other and have a long upper shadow. In this candlestick pattern, a long shadow indicates a more negative candle.

Conclusion

Many expert traders consider candlestick charting like any other tool, as it gives no additional information regarding the market action. They believe that all other types of charts also provide almost similar real-time market information.

But it is vital to understand why candlestick patterns are popular and most commonly used. Their visual appeal stands out, and they can provide data relationships easily. Candlesticks represent the interaction that takes place between sellers and buyers and share the entire picture, unlike other types of charts.

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Frequently Asked Questions

Candlestick patterns are one of the most useful charting methods traders use to predict a stock’s price movement. The pictorial representation of stock prices and the way of displaying market information makes it easier for traders to use the data to their maximum advantage.

A bull market is a situation when stock prices have gone up. Similarly, a bear market is when stocks have fallen. The signs of a bull market include low unemployment, high consumer confidence, and strong economic growth.

A red candle is considered to indicate bearish patterns. In this timeframe, the sellers or bears are in control. Bearish candlestick patterns can be single or multiple candlestick patterns. When the candlestick has a top shadow, it shows that the bulls were unable to sustain at higher levels and the prices fell, thus creating a bear market.

The five powerful bearish candlestick patterns include:

  • Bearish Engulfing Pattern
  • Dark Cloud Cover
  • Bearish Harami
  • Evening Star
  • Gravestone Doji